Fundamental Analysis of Exide Industries: Batteries are not just the silent powerhouses of our devices; they are the enablers of a cleaner future. These boxes of densely packed metals transform our world every day. They bring energy in the form of light to every dark house. They provide better mobility and make sure we are connected to the rest of the world.
Today we are going to talk about one such battery manufacturer, whose energy storage solution has transformed India in the greatest sense. The Company is a pioneer in energy storage, setting new standards for sustainability and scalability. It has been serving India for as long as we received our Independence.
In this fundamental Analysis of Exide Industries, we read about its history, operating segments, industry, financials and future plans..
Table of Contents
Fundamental Analysis of Exide Industries
We will read in brief about its history and its current capabilities. We will understand its segments better and where it earns the most from. Then we will understand its industry and the opportunities it has; we will look at what the future holds for the Company before we do fundamental analysis of Exide Industries its financials and reach a conclusion.
Company Overview
Exide Industries Limited (EIL) began its journey in 1947, as Associated Battery Makers (Eastern) Ltd, a subsidiary of Chloride Overseas UK, which was acquired by the Rajan Raheja Group in 1993. In 1995, the Company was renamed as Exide Industries Limited (EIL).
In 1998, Exide took over the battery business of Standard Batteries Limited (SBL), the then-second largest battery manufacturer in India, along with its factories and the “Standard Furukawa” brand.
EIL has a technology tie-up with Shin-Kobe, Japan for automotive and Valve Regulated Lead Acid (VRLA) batteries and with Furukawa, Japan for Automotive batteries. Exide has the largest storage battery manufacturing capacity in India.
Exide Industries is currently headed by the leadership of Mr. Subir Chakroborty, who is its Managing Director and CEO. Today, Exide produces the world’s largest range of industrial batteries extending from 2.5 Ah to 20,600 Ah covering various technology configurations.
The firm has a presence across 50+ countries and manufacturing units set up in Shamnagar, Chinchwad, Haldia, Hosur, Ahmednagar, and five other plants. It has a robust network of more than 95,000 distributors and dealers/sub-dealers across India.
The Company’s business is majorly divided into two segments: Automotive and Industrial
Segment Analysis
In the Automotive division, the Company caters to 4 wheelers, 2 Wheelers, and 3 Wheelers, providing small batteries to Internal Combustion Engine (ICE) Vehicles. It also provides a full-size battery for E-Rikshaws.
Exide also manufactures Inverter batteries, home UPS systems, Integrated Power Backup systems, and gensets. The industrial division of Exide provides products like Industrial grade UPS (IUPS), batteries for story solar energy, to power Telecom lines, and batteries in Railways and submarines.
Exide earns 70% of its Revenues from the Automotive segment, while the remaining 30% comes from the Industrial segment. 92% of its revenues are generated domestically, while 8% internationally.
During FY23, the Company upgraded Exide Idle Stop Start (ISS) batteries, Enhanced Flooded Batteries (EFB), and Eko Ultra batteries for the automotive sector. Exide also launched new products like Exide NXT, rooftop solar solutions introduced for the industrial sector.
Industry Overview
After a couple of years of lackluster performance induced by the pandemic, the tide has largely turned in favor of the automotive industry and brought cheer to the Original Equipment Manufacturers (OEMs).
Even last year, the industry continued to face headwinds owing to the global semiconductor shortage. However, the shortage has eased out to a large extent, and the industry is looking at a phase of sustained growth.
The trend, however, is not equal across verticals. While some are set to soar higher, others still must deal with challenges such as price hikes, rising operating expenses, and financing costs.
Demand for Passenger Vehicles is driven by, increased mobility, new launches, and easing supply-side constraints. According to the Society of Indian Automobile Manufacturers (SIAM), passenger vehicles registered the highest-ever domestic sales in 2022- 23, surpassing the previous peak of 2018-19.
Commercial vehicles too performed well, coming close to the previous sales peak of 2018-19. Demand for 3-wheelers increased compared to the past two years, though sales are yet to reach the pre-covid levels. 2-wheelers fail to keep pace with other automobile segments.
Overall, domestic sales of passenger vehicles recorded a growth of about 27% during the year under review compared with 13% growth in the previous year. The commercial vehicles segment saw a growth of over 34% this year against a growth of 26% last year.
3-wheeler domestic sales grew by 87% compared to a 19% growth during the previous year. 2-wheeler sales increased by about 17% compared to a de-growth of 11% last year. SIAM believes that positive policy initiatives will help the industry to continue with its growth momentum.
Exide Industries – Financials
Revenue and Net Profit Growth
Exide reported a double-digit revenue growth of ~18%, from Rs. 12,789 Cr. In FY22 To Rs. 15,078.16 Cr. In FY23. The Company is a cyclical stock as out of its last 4 years, it grew its topline in 2 years, while it de-grew from FY20-FY21. Its 5-year CAGR is calculated at just 0.6% due to its cyclical nature.
Net Profit was reported at Rs. 823Cr., ~81% fall from FY22’s net profit of Rs. 4367 Cr. This was because Exide reported extraordinary income, which was due to the sale of its discontinued operations.
The Company had made an extraordinary gain of Rs. 3663Cr. after Tax. After discounting for this income, its FY22 Net Profit comes to Rs. 704Cr. On calculating its Net Profit growth from FY22-23 excluding extraordinary earnings, it comes up to 17% growth. However, its 5-year CAGR shows a de-growth of 0.68%.
| Fiscal Year | Revenue | Net Profit |
|---|---|---|
| 2023 | 15078.16 | 822.7 |
| 2022 | 12789.22 | 4366.93 |
| 2021 | 10359.43 | 809.9 |
| 2020 | 14471.01 | 776.75 |
| 2019 | 14720.88 | 845.55 |
| 5-Year CAGR | 0.60% | -0.68% |
Profit Margins
Upon analysis of the Company’s margins, we can tell that the company has very low Operating Margins almost falling to the single-digit category. Exide reported Operating margins of 10.57%, slightly lower than its 5 5-year average of 10.99%.
The Company has razon-thin Net Profit Margins, with the FY23 number coming to 5.46%. This also is lower than its 5-year average of 5.8%. Exide reported its highest margins in the past 5 Years in FY21 at 7.08%.
| Fiscal Year | Operating Margin | Net Margin |
|---|---|---|
| 2023 | 10.57% | 5.46% |
| 2022 | 10.97% | 5.43% |
| 2021 | 13.19% | 7.08% |
| 2020 | 9.82% | 5.27% |
| 2019 | 10.39% | 5.76% |
| 5 Year Average | 10.99% | 5.80% |
Return Ratios
The Company’s Return on Capital Employed has been on a falling spree. It has linearly fallen from a high of ~23% in FY19 to a 5-year low of ~11% in FY23. This fall is clearly due to earnings failing to keep up as the Company took on more debt.
The trend remains the same when looking at Return on Equity as well. RoE fell from a high of ~15% in FY19 to a low of 7.58% in FY23. The Company must work on improving margins or else EIL is currently a low rewarding business.
| Fiscal Year | RoCE | RoE |
|---|---|---|
| 2023 | 10.96% | 7.58% |
| 2022 | 11.26% | 7.78% |
| 2021 | 14.84% | 10.68% |
| 2020 | 16.96% | 12.13% |
| 2019 | 23.38% | 14.69% |
| 5 Year Average | 15.48% | 10.57% |
Debt Analysis
Exide’s FY23 Debt to Equity comes up to 0.03x, which is its 5-year High. Although at its peak, the Company does have a safe amount of leverage. Debt to equity below 2x is safe and sustainable.
Its Interest coverage ratio remains at a safe amount of 15.45x. This ratio dropped from a 5-year high of 28x in FY21. The 5-year average remains at 16x.
| Fiscal Year | Debt / Equity | Interest Coverage |
|---|---|---|
| 2023 | 0.03 | 15.45 |
| 2022 | 0.02 | 15.93 |
| 2021 | 0.02 | 28.33 |
| 2020 | 0.01 | 9.98 |
| 2019 | 0.01 | 11.67 |
| 5 Year Average | 0.02 | 16.27 |
Fundamental Analysis of Exide Industries – Key Metrics
The Key Metrics of Exide Industries Limited (EIL) are given below.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | 267.45 | Market Cap (Cr.) | 22656 |
| EPS (TTM) | 9.91 | Stock P/E (TTM) | 26.9 |
| RoE | 7.58% | RoCE | 10.96% |
| Promoter Holding | 45.99% | Book Value | 133.73 |
| Debt to Equity | 0.03 | Price to Book Value | 2 |
| Net Profit Margin | 5.46% | Operating Profit Margin | 10.57% |
Fundamental Analysis of Exide Industries – Future Plans
Exide, through its subsidiary company Exide Energy Private Limited, is actively expanding its presence in the lithium-ion technology space. The subsidiary has secured orders worth around Rs. 700Cr. for lithium-ion packs during the year.
Exide Energy Solutions Limited, a 100% subsidiary, specializing in lithium-ion cell manufacturing is setting up the country’s single-site multi-giga-watt lithium-ion cell manufacturing factory in Karnataka. The project is underway and expected to commence production under phase 1, by the end of next FY24.
The giga-factory project is planned in collaboration with SVOLT Energy Technology, a Chinese Company. Both Companies have agreed to a multi-year technological partnership to develop lithium-ion batteries for electric vehicles (EVs).
As part of the deal, SVOLT will grant Exide an irrevocable right and license to use and commercialize applicable lithium-ion cell manufacturing technology and know-how in India. It will also provide full support for the establishment of a greenfield manufacturing facility.
Conclusion
Exide Industries Limited (EIL) is a legacy stock with a rich history pre-dating India’s Independence. It has still not lost its shine as it continues to survive and prosper. It continues to progress forward as it sets up a giga-factory to manufacture Li-ion Batteries.
The Company operates on a high volume and low margins business, which leads to its single-digit margins. Even though this leads to the business being competitive, it comes at the cost of low returns to shareholders.
While looking at the Company’s balance sheet, we notice that its Inventories rose by 20%, slightly higher than the Revenue growth of 18%. Inventories and Trade Receivables combined constituted ~32% of the Company’s Total Assets.
A rise in these assets leads to lower working capital as cash is inefficiently tied up in the business. Due to the rise in inventories, its Net Operating Cash Flow increased by a mere 1%, significantly lower compared to 17% growth (PAT growth calculated after excluding extraordinary items).
Upon all analysis, we realize that Exide Industries is a cyclical stock, making investors richer when timed well. However, a long-term investor can look forward to the Company’s Giga-Factory project in Karnataka.
So, let us know what kind of opportunity can be made from this stock. Should we invest based on its industry cycles? Or should we hold it for the long term? Let us know in the comments below!
Written By Nasir Hussain
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